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Statism Is Finished


Two separate articles in the mainstream press provide good examples of how proponents of the welfare-warfare state are getting so desperate over the failure of their beloved statist paradigm that their thinking is getting ever more muddled. The two articles are “Europe’s Austerity Madness” by Paul Krugman in the New York Times and “Give Egypt’s Aid Money to Libya” by Michael J. Totten in the Wall Street Journal.

The New York Times and the Wall Street Journal? The common conception, the one they teach students in public schools and state-supported universities, are that these two publications are at opposite ends of the ideological spectrum, right? The Journal would accuse Times writers of being leftwing radicals and the Times would accuse the Journal writers of being rightwing extremists.

Let’s look at these two pieces and see if, from a libertarian perspective, there is any difference in principle between the Times and the Journal, or, for that matter, between liberals and conservatives.

On the face of things, it would seem that the two articles are unrelated. Krugman’s article deals with austerity measures in Spain. Totten’s article concerns U.S. foreign aid to Egypt and Libya. Actually, however, the articles demonstrate how, in principle, there isn’t a dime’s worth of difference between liberals and conservatives.

Krugman expresses sympathy with people in Spain who are protesting the cutback of their welfare dole. Krugman, like the protestors, is outraged over the cutbacks. It’s just not right, he fervently argues. “With unemployment at Great Depression levels and with erstwhile middle-class workers reduced to picking garbage in search of food, austerity has already gone too far,” he declares.

What’s the cause of this economic mayhem? According to Krugman, it’s all because of the “huge housing bubble, which caused both an economic boom and a period of inflation that left Spanish industry uncompetitive with the rest of Europe.”

What’s Krugman’s solution? He says that Germany “should let the European Central Bank do what’s necessary to rescue the debtor nations — and it should do so without demanding more pointless pain.”

Now, notice something important here: Nowhere does Krugman even consider the possibility that the crux of the problem is his beloved welfare-state paradigm. If he did consider that possibility, then obviously he would have to consider the possibility that his proposed solution will not work. That is something he simply is incapable of doing.

You see, for both liberals and conservatives, the welfare state is a given. As far as they’re concerned, the welfare state has now become a permanent part of American life. According to them, we should just accept that and then try to come up with ways to make the welfare state work, as Krugman devotes his life to doing.

Consider the basic problem. The government promises to provide a welfare dole to its citizens. For simplicity, let’s assume that the total amount of the promised dole is $1,000.00. Let’s says that the government collects the total sum of $250 in taxes.

Do you see the problem? The government doesn’t have the money to pay off the dole it has promised. It’s $750 short. But when it tries to explain that to people, they get upset and demand that the government honor its promise.

The government could go out and raise taxes on the people who have income and wealth in order to have the money to pay the entire promised dole. But the problem is that you can’t squeeze blood out of a turnip. After decades of confiscatory taxes on the Spanish people, the parasite has just about killed the private sector, which pays the taxes. If the government confiscates more wealth from the private sector, it just drives more businesses into bankruptcy and sends more people into unemployment, who then demand their share of the dole. And then what happens the following year, where people are, once again, demanding their full dole?

Interestingly enough, it seems that Krugman understands that problem because he doesn’t call for higher taxes in his article, as most liberals do. Instead, he turns to the European Central Bank to solve the problem. How? Through inflation — the printing of the money to “stimulate the economy” — or “priming the pump,” as interventionists used to call it.

But how in the world does that solve the problem? If printing money produced real, solid, long-term prosperity, Zimbabwe would have been the wealthiest nation in the world when it was inflating its currency several years ago. It wasn’t. It was possibly the poorest country in the world, in part because the government was looting and plundering the citizenry with inflationary increases in the money supply.

When the central bank inflates the money supply, it sends false signals to businessmen, banks, and investors — signals that indicate that there is increased wealth in society that can justify expanding business operations. Responding to those deceptive signals, the businessmen expand operations, the banks lend money for them, and investors put their money into the ventures.

But the problem is that increases in paper money aren’t real wealth—they’re not real capital. They are nothing but false signals and ways to plunder and loot people without raising taxes.

Ultimately, what happens? Reality sets in at some point. People figure out that there really wasn’t any increase in real wealth to justify the expansion of operations. That’s when the bubble bursts and the new round of crises occur.

That’s the welfare state and managed economy in action. Why can’t liberals and conservatives just face the fact that their beloved statist paradigm has failed and that it is incapable of being made to work?

Meanwhile, we have Totten over at the Wall Street Journal saying that the U.S. government should cancel foreign aid to Egypt and give the money to Libya instead.

What’s his reason?

It’s because Egyptian president Mohammad Morsi is not being sufficiently subservient to the U.S. government, as his predecessor Hosni Mubarak was. So, Totten says, the U.S. government should just take the money it gives to Egypt and give it instead to Libya, which appears to be much more loyal to the U.S. government.

Now, notice the underlying message here: U.S. foreign aid has nothing to do with helping foreign nations and everything to do with controlling and manipulating the actions of foreign regimes. The idea is that once the U.S. government puts a regime on a giant dole, that regime will go out and expand its budget, its bureaucracy, its military, and its intelligence forces. In that way, it will continue to do what the Empire says because it will need a repeat of the dole the following year to pay its bills.

That’s the way that the Empire keeps its members in line. Do as we say and we’ll continue to give you your crack. Get uppity and we’ll cut you off from your dole.

But wait a minute. Foreign regimes are not the only ones on the dole, right? Recall Krugman’s article. He’s lamenting those cutbacks for Spain’s citizens who are on the dole. Why, aren’t those people just as dependent on the dole as foreign regimes are dependent on U.S. foreign aid? The intent and consequence of a domestic dole is no different from that of a foreign dole — to make the recipient dependent on the dole and inculcate a mindset of helplessness without the dole.

What Totten calls for, however, is unlikely to occur. Why? Because Egypt’s military continues to be a loyal and subservient member of the U.S. Empire, even if Egypt’s president isn’t. Thus, by keeping Egypt’s military and intelligence forces on the dole (where U.S. foreign aid goes), the U.S. military and the CIA retain the option of initiating a military-intelligence coup that ousts Morsi from power and installs another Mubarak-like U.S. stooge in his place, much like what happened in Iran, Chile, Guatemala, and elsewhere around the world.

What’s fascinating, from an economic standpoint, about Totten’s analysis is that he doesn’t just call for a termination of U.S. aid to Egypt. Instead, he wants to transfer the aid to Libya.

But wait a minute. Don’t conservatives constantly rail against out-of-control federal spending? Don’t they never cease to remind us that they, unlike liberals, are fiscally responsible? Don’t they tell us that they’re concerned about the deficit and the national debt?

Well, here is an excellent opportunity to show how genuine all those conservative pronouncements are! Why not just terminate U.S. aid to Egypt and don’t give it to anyone? How about just saving the money? How about sending a message that it’s important to reduce federal spending?

Alas, those conservative mantras are all fluff. Conservatives love to spend money as much as liberals do.

Spain is not the only welfare-state nation that is in trouble. So is the United States. Everywhere you look in America’s welfare-warfare state, there’s a crisis. Social Security, Medicare, Medicaid, healthcare, education, foreign policy, drug war, terrorism, spending, debt, taxes, torture, Iraq, Afghanistan, Pakistan, and more.

It’s all cracking apart. The long run is upon us. The welfare-warfare state is finished. Oh, sure, they can still resort to their standard monetary crackpot policy of inflation for a short-term fix, but they’re just delaying the inevitable.

When a paradigm no longer works, there is only one choice — abandon it in favor of one that works. The one that works is libertarianism — i.e., free markets, private property, sound money, and a limited government, constitutional republic.

How bad do things have to get before the American people finally restore the founding economic principles of our nation?

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.